This bill does help ease the marriage penalty inherent in the EITC and seeks to fight the program’s high payment error, but it uses some of the most economically destructive methods of raising revenue to pay for it. The Senator’s bill would push the United States’ uncompetitive worldwide system of taxation in the wrong direction and would further limit the amount corporations can deduct for compensation expenses.

Reforms to the EITC and the “Dual-Earner Deduction”

Expands the EITC while Attempting the Fight Payment Error

Under current law, the maximum EITC for childless workers is $487 with a max income threshold of $14,340.

Senator Murray’s bill would increase the max credit to around $1350 and increase the max income threshold to around $20,000 for childless, single workers. The max income threshold for married taxpayers would be around $5,400 more. It also lowers the eligibility age to 21. She quotes a Treasury department estimate, which says that approximately 13 million additional taxpayers would be eligible for the credit.

In addition to the expansion, it will also attempt to reduce the program’s high rate of payment error. Estimates from the IRS show that the EITC has an overpayment rate of around 25 percent, which costs around $11.6 billion in 2012. Since most taxpayers who claim the EITC have their tax returns prepared by someone else, Senator Murray is looking to reduce error by doubling the penalty for no following the “due diligence” requirements to $1000.

Dual-Earner Deduction and a Reduction in the EITC Marriage Penalty

Senator Murray’s bill would also extend an additional deduction to dual-earner families with children. The law allows for a deduction equal to 20 percent of the income of the spouse with the lower income. For example, a family with two earners, one making $30,000 and another making $20,000, the deduction would reduce that family’s AGI by $4,000 (20 percent of $20,000). The max deduction is $11,000. This deduction would phase-out once the family’s combined AGI reaches $110,000 and would equal zero at $130,000 of AGI.

Dual-Earner Deduction Amount Under Murray Tax Plan

Income of Spouse One

Income of Spouse Two

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$10,000

$2,000

$2,000

$2,000

$2,000

$2,000

$2,000

$20,000

$2,000

$4,000

$4,000

$4,000

$4,000

$4,000

$30,000

$2,000

$4,000

$6,000

$6,000

$6,000

$6,000

$40,000

$2,000

$4,000

$6,000

$8,000

$8,000

$8,000

$50,000

$2,000

$4,000

$6,000

$8,000

$10,000

$10,000

$60,000

$2,000

$4,000

$6,000

$8,000

$10,000

*$6,000

*This is in the phase-out range

This deduction is structured to count against earned income when determining eligibility for the EITC. As a result, this deduction eases (but doesn’t completely eliminate) the substantial marriage penalty that currently exists when two individuals who were once eligible for the EITC as singles become ineligible when they married.

Pays for Expansion to EITC by Making Corporate Tax Code Less Competitive

This proposal would define any income, passive or active, that is taxed by a foreign country at a rate below 15 percent as passive Subpart F income and would subject it to immediate U.S. taxation.

The United States is one of the only countries that taxes the worldwide income of its corporations, putting them at a competitive disadvantage. Deferral in the current system helps alleviate some of this problem. Ending deferral for this income would move the United States further from a territorial system, which exempts foreign-earned income of corporations; a system that most countries in the world use.

Senator Murray’s bill would include performance-based stock options in the cap, no longer allowing businesses to deduct the cost of that compensation over $1 million. This will artificially boost corporate taxable income and taxes for corporations, making it more expensive for them to attract talent.

State Corporate Alternative Minimum Taxes Fall by the Wayside Post-TCJA

2019 Tax Brackets

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